Investment: Poor old Bill Gates just can't stop getting richer

HERE IS the question: if you were Bill Gates, the richest man on the planet, how would you organise your investments? Thanks to Fortune, the US business magazine, we now know most of the answers - and very instructive they are too. I think the question could usefully be set as a core question for financial advisers in their exams. (Below the one that goes: how much is a 3 per cent commission on this second-rate unit trust/endowment policy worth to me?)

We are talking big numbers here. Even though Bill Gates keeps selling stock in Microsoft, he cannot do it quickly enough to keep up with the explosive growth of the value of his remaining shareholding. His holding in Microsoft is down from 44 per cent to 18.5 per cent, but the incredible 59 per cent compound annual rate at which the shares have grown since the firm went public 13 years ago means that his holding is now worth more than $75 billion, and still rising.

Microsoft shares are up 50 per cent since the Justice Department started its antitrust case against the firm last year. Nothing, it seems, can stop the Microsoft juggernaut. Warren Buffett called the shares "the best performing endowment fund in the world".

Sensible fellow that he is, Gates is unloading his shares and giving them to charity. According to Fortune, he sells an average of 80,000 shares in Microsoft every day. He has set up two charitable foundations to dispense help to philanthropic causes: their assets amount to $6.5bn. They have given away $350m, more than most Fortune 500 companies earn in a year. And Gates has his personal investment portfolio worth $5bn - small beer compared with his Microsoft stock, but the kind of sum that still demands a modicum of attention.

So how does Michael Larson, the investment manager looking after the Gates billions, deal with all that money?

His strategy is fundamentally simple. Gates, having made his fortune, is no hurry to lose it. His foundations, with their constant need for cash, are more interested in securing their capital and a decent income than they are in creating huge capital gains. The watchwords here are risk minimisation, not maximising returns.

The biggest problem Gates has as an investor is to reduce the heavy concentration of his wealth in one single stock. In his words: "The money I have outside Microsoft is less than 10 per cent of the total. So we will sell stock periodically to get more diversity. It is the same strategy that most individual investors engage in." (Don't laugh: remember this is the United States, where wealth accumulation is not questioned as a desirable norm).

Mr Larson has steered most of the Gates fortune into defensive investments. About 70 per cent of the Microsoft founder's personal investment portfolio is in government bonds, and short-dated ones at that. He also has some emerging market debt and some high yield bonds. The balance of the fund is split between private equity (50 per cent), property and oil (25 per cent) and a few shares Mr Larson expects to do well when and if Wall Street's love affair with technology stocks finally comes to an end (as it surely must). There are wider lessons. One is that asset allocation - how much of your money you put into each type of asset - is where the real value in investment management is added. It is not (as most punters still think) in picking individual stocks.

Mr Larson's comments on the markets also make a lot of sense. His deadpan comment on Wall Street is that "the market is high right now and there is an awful lot of excitement about tech stocks". His bias towards short- term bonds is partly a reflection of his view that interest rates are trending higher - he expects another 1 per cent on long-term interest rates - and partly about as clear a statement a fund manager can make that he thinks the markets are overvalued.

Larson reckons the cycle in the market will turn soon. A trigger point will change the emphasis from technology and today's other fashionable sectors. Agriculture he expects back, and the bombed-out oil sector looks interesting too. In my book, investors with even a modicum of appetite for risk should be positioning for a comeback in the oil sector this year.

But the central paradox remains. Bill Gates has the Midas touch. He just can't stop getting richer. For someone who says he will give away all his wealth by the time he dies, the hi-tech boom is a major obstacle that even all the efforts of one of the best fund managers in America cannot surmount.

Perhaps poor old Bill may actually have to turn to an independent financial adviser and start paying commission on a lot of expensive UK investment funds that don't really earn their corn. That should do the trick, if all else fails.

Start your day with The Independent, sign up for daily news emails
PROMOTED VIDEO
ebooks
ebooksA special investigation by Andy McSmith
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

Recruitment Genius: Software Development Manager

£40000 - £50000 per annum: Recruitment Genius: This is an exciting opportunity...

Ashdown Group: Product Manager - (Product Marketing, Financial Services)

£30000 - £35000 per annum + Benefits: Ashdown Group: Marketing Manager - Marke...

Recruitment Genius: Compliance Assistant

£13000 per annum: Recruitment Genius: This Pension Specialist was established ...

Ashdown Group: Market Research Executive

£23000 - £26000 per annum + Benefits: Ashdown Group: Market Research Executive...

Day In a Page

As in 1942, Germany must show restraint over Greece

As in 1942, Germany must show restraint over Greece

Mussolini tried to warn his ally of the danger of bringing the country to its knees. So should we, says Patrick Cockburn
Britain's widening poverty gap should be causing outrage at the start of the election campaign

The short stroll that should be our walk of shame

Courting the global elite has failed to benefit Britain, as the vast disparity in wealth on display in the capital shows
Homeless Veterans appeal: The rise of the working poor: when having a job cannot prevent poverty

Homeless Veterans appeal

The rise of the working poor: when having a job cannot prevent poverty
Prince Charles the saviour of the nation? A new book highlights concerns about how political he will be when he eventually becomes king

Prince Charles the saviour of the nation?

A new book highlights concerns about how political he will be when he eventually becomes king
How books can defeat Isis: Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad

How books can defeat Isis

Patrick Cockburn was able to update his agenda-setting 'The Rise of Islamic State' while under attack in Baghdad
Judith Hackitt: The myths of elf 'n' safety

Judith Hackitt: The myths of elf 'n' safety

She may be in charge of minimising our risks of injury, but the chair of the Health and Safety Executive still wants children to be able to hurt themselves
The open loathing between Barack Obama and Benjamin Netanyahu just got worse

The open loathing between Obama and Netanyahu just got worse

The Israeli PM's relationship with the Obama has always been chilly, but going over the President's head on Iran will do him no favours, says Rupert Cornwell
French chefs get 'le huff' as nation slips down global cuisine rankings

French chefs get 'le huff' as nation slips down global cuisine rankings

Fury at British best restaurants survey sees French magazine produce a rival list
Star choreographer Matthew Bourne gives young carers a chance to perform at Sadler's Wells

Young carers to make dance debut

What happened when superstar choreographer Matthew Bourne encouraged 27 teenage carers to think about themselves for once?
Design Council's 70th anniversary: Four of the most intriguing prototypes from Ones to Watch

Design Council's 70th anniversary

Four of the most intriguing prototypes from Ones to Watch
Dame Harriet Walter: The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment

Dame Harriet Walter interview

The actress on learning what it is to age, plastic surgery, and her unease at being honoured by the establishment
Art should not be a slave to the ideas driving it

Art should not be a slave to the ideas driving it

Critics of Tom Stoppard's new play seem to agree that cerebral can never trump character, says DJ Taylor
Bill Granger recipes: Our chef's winter salads will make you feel energised through February

Bill Granger's winter salads

Salads aren't just a bit on the side, says our chef - their crunch, colour and natural goodness are perfect for a midwinter pick-me-up
England vs Wales: Cool head George Ford ready to put out dragon fire

George Ford: Cool head ready to put out dragon fire

No 10’s calmness under pressure will be key for England in Cardiff
Michael Calvin: Time for Old Firm to put aside bigotry and forge new links

Michael Calvin's Last Word

Time for Old Firm to put aside bigotry and forge new links